Sh20bn extra in fuel tender raises queries

Dar es Salaam. If you banked your hopes on the assumption that a stabilising local currency and declining global petroleum prices would give Tanzanian consumers a break, you are wide off the mark.

A decision by authorities to award a bulk fuel import tender without competitive bidding has raised eyebrows as the fuel import price in the contract has shot up by over Sh18 billion, a cost that will be offloaded on the end to consumers.

Fuel consumers should therefore brace for tougher times when the energy and water utilities regulatory authority (Ewura) announces new indicative prices for petroleum products, thanks to the amplified premium in the new importation contract.

The Shipping and Supply Contract with Augusta Energy SA, signed on July 29 by the Petroleum Importation Co-ordinator (PIC) under the Bulk Procurement System (BPS), puts the weighted average premium at a record $64.911 per metric tonne of petroleum products.

This is $20.596 more than the weighted average premium of $44.315 per metric tonne that was agreed by PIC and Augusta in the preceding Shipping and Supply Contract on July 3. Industry experts say the Weighted Average Premium caters for the supplier’s freight costs and profit margins. The premium for the tender now being questioned will be the highest in the two-year history of the bulk-procurement system. The last premiums were $44.3, $48.8 and $34,15 per metric tonne.

Prior to the signing of the contract, PIC general manager Michael Mjinja said he had been in touch with all oil marketing firms and asked them to submit their requirements for the period prior to, during and after the General Election. According to Mr Mjinja, PIC is also undergoing restructuring and there are fears that the new structure will adversely affect fuel importation as the country prepares for the General Election, hence the need for enough supplies between August and November in a year that is “transitional”.

Sources within the oil marketing sector have told The Citizen that marketers have ordered a total of 438,961 metric tonnes to be imported under the July 29 Shipping and Supply Contract. The tender itself, sources say, was not advertised as required and contravenes the Petroleum Act, the Petroleum (Bulk Procurement) Regulations and the Petroleum Bulk Procurement System’s Implementation Manual.

With an additional $20.596 premium per metric tonne, the cost of the 438,961 metric tonnes works out to a staggering $9,040,840.756 (about Sh19.3 billion at the prevailing exchange rate), which marketers will then transfer to final consumers, with the new pump price expected to climb to the Sh2400 per litre of petrol.

Neither Mr Mjinja nor the PIC board chairman, Mr James Andilile, would comment on the amplified premium when they spoke to The Citizen yesterday. “I will talk to you about that when I come back next week,” Mr Mjinja said. “I’m in Uganda attending to a sick relative.”

Mr Andilile, who collaborated upon receiving the call, changed tack as soon as he was briefed on the issue and told The Citizen he was in a meeting. He directed the reporter back to Mr Mjinja and, on being told that Mr Mjinja was in Uganda, he promised to send the contact details of someone who acts on behalf of Mr Mjinja whenever the latter is away--a promise he had not fulfilled as The Citizen went to bed.

This leaves pundits speculating on what would push PIC to single handedly award a tender for an additional Sh20 billion in cost against all indicators that the price should be declining. It is even more baffling because this development comes at a time when global prices of petroleum products are still on the decline and the Shilling is on a two-month break from a free-fall.

World oil prices were fairly stable, at around $110 a barrel, from 2010 to mid-2014. But prices have more than halved since June. Brent crude oil has averaged below $50 a barrel for the first time since May 2009 while the US crude is approaching the $40 a barrel mark. In Asia yesterday, crude extended losses to trade a hair’s breadth away from the psychologically-important $40 a barrel mark -- a level not seen since the height of the financial crisis in 2009.

US benchmark West Texas Intermediate (WTI) dipped 41 cents to $40.39 in afternoon trade, after falling sharply in New York to its lowest since March 2009. Brent crude dropped 28 cents to $46.57 a barrel.

Ewura reacted to a public outcry by slashing pump prices late last year. In February, Ewura capped the price for petrol at Sh1,768 per litre in Dar es Salaam while diesel was capped at Sh1,708. Tanzanians rejoiced further in March when the price of petrol dropped further to Sh1,652 while that of diesel was Sh1,563. With a falling local currency, Ewura started reviewing prices upwards. In January last year, the Shilling traded at an average of 1,630 against the dollar. In February this year, it was trading at between Sh1,830 and Sh1,900 per dollar before depreciating to a historic Sh2,400 in June, sending the Bank of Tanzania back to the drawing board--which saw the Shilling bounce back to hover around the Sh1,900 mark in early July 2015. It stands now at an average of Sh2,150. Hand picking of one company to supply petroleum products sends bad signals to PIC, which has always claimed that the BPS programme, which is meant to be implemented through the common open tenders system, has helped reduce the cost of importing petroleum products in the past two years to reach premiums as low as $37.33 per metric tonne. Bringing the premium to $64.911 means that the country is now hovering close to the pre-BPS period, when the cost rose as high as $73 or more per metric tonne.